An Empirical Study of Credit Shock Transmission in a Small Open Economy

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dc.contributor.author BEDOCK, Nathan
dc.contributor.author STEVANOVIC, Dalibor
dc.date.accessioned 2012-04-26T16:40:29Z
dc.date.available 2012-04-26T16:40:29Z
dc.date.issued 2012
dc.identifier.issn 1830-7728
dc.identifier.uri http://hdl.handle.net/1814/21741
dc.description.abstract In this paper we identify and measure the effects of credit shocks in a small open economy. To incorporate information from a large number of economic and financial indicators we use the structural factor-augmented VARMA model. In the theoretical framework of the financial accelerator, we approximate the external finance premium with credit spreads. We find that an adverse global credit shock generates a significant and persistent economic slowdown in Canada; the Canadian external finance premium rises immediately while interest rates and credit measures decline. Variance decomposition reveals that the credit shock has an important effect on real activity measures, including price and leading indicators, and credit spreads. On the other hand, an unexpected increase in the Canadian external finance premium shows no significant effect in Canada, suggesting that the effects of credit shocks in Canada are essentially caused by the unexpected changes in foreign credit market conditions. Given the identification procedure our structural factors have an economic interpretation. en
dc.language.iso en en
dc.relation.ispartofseries EUI MWP en
dc.relation.ispartofseries 2012/02 en
dc.subject Credit shock en
dc.subject structural factor analysis en
dc.subject factor-augmented VARMA en
dc.subject C32 en
dc.subject E32 en
dc.subject E44 en
dc.title An Empirical Study of Credit Shock Transmission in a Small Open Economy en
dc.type Working Paper en
dc.neeo.contributor BEDOCK|Nathan|aut|
dc.neeo.contributor STEVANOVIC|Dalibor|aut|


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